 "Three areas of regulatory attention for 2015")
It is that time of the year. As 2014 winds down, it is time to take stock of where things stand in the legal and regulatory policy space. The community of those interested in India (within and without) has extraordinarily high expectations from the government they have voted into office.
The expectations that have been sold this year are prone to causing disappointment next year. Media reports suggest that industry has already started expressing disappointment, behind closed doors for now. Rome was not built in a day. But the building blocks of expectations, and of disappointment, take time to put in place and one has to be careful in placing them.
Large segments of policy that can directly affect the community are under the control of those who are not elected to office, such as regulators - for good reason, but equally trapping an important component of policy in a vacuum without accountability. What then, should regulatory policy-makers worry about in 2015? Three broad areas, this column will argue.
First, is the lack of clarity in approach to regulatory policy: increasingly, not only the legislative strategy, but also the enforcement strategy appears unhinged. When a problem is germinating, no regulator wants to own it. Classic examples: collective investment schemes; Sahara's purported fund-raising; and Uber's taxi service that claims not to be one. The last among these can even be attributed to regulators feeling shy of being perceived as "un-cool" and "backward" by asking whether in the name of innovation the system is being gamed. Yet, at the first sign of trouble, imposing a ban comes easiest. Sticking to the same examples: treating any pool of Rs 100 crore as a collective investment scheme regardless of character; asking Sahara to repay (obviously non-existent "investors") tens of thousands of crores within weeks; and banning Uber.
With enforcement, matters are worse. One example is: using emergency powers and remedial powers to inflict serious penal pain without justifying the choice of a measure. Seeking to prohibit a person from economic activity without justifying why the restraint is necessary or why a real legal penalty would not better serve the purpose, is now par for the course. Worse, one penal officer of a regulator imposes extraordinary and harsh penalties while another takes a realistic view, both, in parallel on identical facts and circumstances. Financial firms with a pedigreed name get treated right while those with mom-and-pop shop names come in for harsh treatment. Faced with the risk of this criticism, highly pedigreed names become prime targets for extraordinarily harsh action to be made poster-boys of how regulators are not deterred by pedigree.
Not for nothing is it said that every statement about India can be as true as the diametrically opposite statement. Coming up with a reasonable and logical regulatory and enforcement policy is critical to make doing business predictable. Political correctness in not speaking up about regulatory excesses merely because the one at the receiving end of unfair treatment being a "violator" lays the foundation for ill-treatment of the non-violators with the only requirement being levelling an allegation that a non-violator is a violator.
Second, is accountability of regulatory actions. The discourse is currently divided on the if-you-are-not-with-us-you-are-against-us principle that George Bush sold for his "war on terror". Indeed, the shrillness of the debate is as high as discussions on terrorism - with one end of the spectrum saying that any oversight erodes regulatory autonomy and the other end arguing that unless every single regulatory move including policy can be second-guessed, there would be no accountability.
The quest of each side seeking what it considers to be the "best" becomes the enemy of the "good". Fixing a good middle ground and starting with judicial review of penal regulatory decisions is a good place to start. Every piece of oversight need not be judicial. There are other means of building institutional strengths of accountability for policy decisions including, the regulation of how regulators should formulate policy. This comes in for far greater opposition from incumbents in regulatory agencies. If one does not bite this bullet and focus on pinning down a clear and accountable path for regulatory transparency and accountability, we will have a bunch of sheriffs running amuck grabbing headlines every day, but with a market that feels no more secure or clear about how to conduct itself.
Finally, the mode of selecting and appraising performance of regulators needs serious reform. No matter how good a policy may be, it can only be as good as the people implementing it. The single weakest link in the regulatory food chain is the selection and appointment of personnel who would run the regulatory agencies. Even weaker is the process of how to select the selectors. Selection committees are formed but their incumbents either do not take it seriously and delegate the work to colleagues, or expect to go by intuition and gut and back horses that are unable to cope with running on race day. Selection committees are not given a mandate to invite applications either. No other aspect of regulatory policy needs greater attention than this one.
The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own
The expectations that have been sold this year are prone to causing disappointment next year. Media reports suggest that industry has already started expressing disappointment, behind closed doors for now. Rome was not built in a day. But the building blocks of expectations, and of disappointment, take time to put in place and one has to be careful in placing them.
Large segments of policy that can directly affect the community are under the control of those who are not elected to office, such as regulators - for good reason, but equally trapping an important component of policy in a vacuum without accountability. What then, should regulatory policy-makers worry about in 2015? Three broad areas, this column will argue.
First, is the lack of clarity in approach to regulatory policy: increasingly, not only the legislative strategy, but also the enforcement strategy appears unhinged. When a problem is germinating, no regulator wants to own it. Classic examples: collective investment schemes; Sahara's purported fund-raising; and Uber's taxi service that claims not to be one. The last among these can even be attributed to regulators feeling shy of being perceived as "un-cool" and "backward" by asking whether in the name of innovation the system is being gamed. Yet, at the first sign of trouble, imposing a ban comes easiest. Sticking to the same examples: treating any pool of Rs 100 crore as a collective investment scheme regardless of character; asking Sahara to repay (obviously non-existent "investors") tens of thousands of crores within weeks; and banning Uber.
With enforcement, matters are worse. One example is: using emergency powers and remedial powers to inflict serious penal pain without justifying the choice of a measure. Seeking to prohibit a person from economic activity without justifying why the restraint is necessary or why a real legal penalty would not better serve the purpose, is now par for the course. Worse, one penal officer of a regulator imposes extraordinary and harsh penalties while another takes a realistic view, both, in parallel on identical facts and circumstances. Financial firms with a pedigreed name get treated right while those with mom-and-pop shop names come in for harsh treatment. Faced with the risk of this criticism, highly pedigreed names become prime targets for extraordinarily harsh action to be made poster-boys of how regulators are not deterred by pedigree.
Not for nothing is it said that every statement about India can be as true as the diametrically opposite statement. Coming up with a reasonable and logical regulatory and enforcement policy is critical to make doing business predictable. Political correctness in not speaking up about regulatory excesses merely because the one at the receiving end of unfair treatment being a "violator" lays the foundation for ill-treatment of the non-violators with the only requirement being levelling an allegation that a non-violator is a violator.
Second, is accountability of regulatory actions. The discourse is currently divided on the if-you-are-not-with-us-you-are-against-us principle that George Bush sold for his "war on terror". Indeed, the shrillness of the debate is as high as discussions on terrorism - with one end of the spectrum saying that any oversight erodes regulatory autonomy and the other end arguing that unless every single regulatory move including policy can be second-guessed, there would be no accountability.
The quest of each side seeking what it considers to be the "best" becomes the enemy of the "good". Fixing a good middle ground and starting with judicial review of penal regulatory decisions is a good place to start. Every piece of oversight need not be judicial. There are other means of building institutional strengths of accountability for policy decisions including, the regulation of how regulators should formulate policy. This comes in for far greater opposition from incumbents in regulatory agencies. If one does not bite this bullet and focus on pinning down a clear and accountable path for regulatory transparency and accountability, we will have a bunch of sheriffs running amuck grabbing headlines every day, but with a market that feels no more secure or clear about how to conduct itself.
Finally, the mode of selecting and appraising performance of regulators needs serious reform. No matter how good a policy may be, it can only be as good as the people implementing it. The single weakest link in the regulatory food chain is the selection and appointment of personnel who would run the regulatory agencies. Even weaker is the process of how to select the selectors. Selection committees are formed but their incumbents either do not take it seriously and delegate the work to colleagues, or expect to go by intuition and gut and back horses that are unable to cope with running on race day. Selection committees are not given a mandate to invite applications either. No other aspect of regulatory policy needs greater attention than this one.
The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own